Monday Options Update: C, MYGN, TSN, LLTC, F, GM, BEC, RNWK

Citigroup (C)  –Traders continue to nettle Citi stock with another 3% decline to $16.72. Over the weekend it was announced that Citi is overhauling its bonus system for senior management, making executive payouts contingent upon bank results rather than the profits of their own division. While some observers have applauded the measure for incentivizing prudent risk management and cross-departmental cooperations, others have voiced fears that the measure could lead to high-level defections from Citi’s brain-trust -  defections the company can ill afford even as it seeks to cut jobs overall. Implied volatility at 67.3% shows a more than 20 percentage-point elevation above the 46.5% historic reading on Citi stock. The 95,000-plus lots trading in the first market hour are slightly skewed to calls, but much of this was wrapped up in call selling at the July 17.50 and 20 strikes. Put-spreaders appear to favor the August 12.50 and 15 strikes.  

Myriad Genetics (MYGN) – Investors were taken aback by this morning’s news that the development of Myriad’s much-anticipated Alzheimer’s drug, Flurizan, would be discontinued after it failed to show significant improvement of patients in a final-stage clinical test. Flurizan was the most advanced of the experimental, so-called amyloid-inhibitor drugs being developed to curb the formation of plaques on brain cells that actually cause Alzheimer’s (rather than simply treating symptoms of the disease), and after promising clinical results for similar drugs from Elan Corp (ELN) and Wyeth (WYE) earlier this month, the market was looking for validation of the anti-amyloid therapeutic concept with Myriad’s clinical results. This had led to an astonishingly high elevation in Myriad’s implied volatility, which topped out at 117% on June 20. Today, the company’s shares are down 6% to $44.92 and implied volatility has reined in some 58%, making it the top implied volatility loser on our platform, to 33.4% July puts at the 40 and 45 strikes are trading to buyers and sellers along with calls at strikes of 50 and above, as it looks like traders may be getting out of volatility positions they had entered before the data was release. Put-buying appears prevalent in the August contract at strikes 40 and 45.

Tyson Foods (TSN) – Shares in Tyson Foods rose 2.5% to $15.00 following news of a joint processing and marketing venture with Indian poultry processor Godrej Foods, in which Tyson will command a 51% interest. The joint venture is part of a newly international strategic focus in Tyson that will bank on Asia, Mexico and South America for future growth –a strategy which led it to announce last week the planned divestiture of its Canadian beef processing business as it turns away from North America. Options activity rose to 8 times the normal level on news of the Godrej venture, but heavily centered in bearish puts, with heavy volumes going through at the 12.50 line in both the October and January contracts – some 18,000 trading at 42 cents in the October contract and 8,000 trading at the January 12.50 line. Initially we wondered if some sort of calendar put spread activity was occurring, but learned that all the volume appeared to be initiated by fresh selling, suggesting that this might be a hedge by a short seller of Tyson stock looking to protect against a rally in the share price.

Linear Technology Corp (LLTC) – Options in Linear Technology Corp, the maker of integrated circuitry for cell phones, computers, factory automation and automobiles, are trading at nearly 6 times the normal level as shares show a 1.2% gain to $32.79. Implied volatility on all Linear options has shown a more-or-less consistent elevation of 33.7% above a 24.9% historic volatility through the month of June, and taking a six-month view of its share price activity, we observe that its shares have traded as low as $26.54 and as high as $37.27 – a range neatly parenthesized with an $11 run to the upside from February to May of this year. Most of today’s gain in option volume appears at the at-the-money November 32.50 straddle, which looks to be selling to the bid for a combined premium of $5.30, indicating that a trader feels the recent  tapering off in share price from the May high to current levels is a solid plateau that is likely to persist into the fall. Alternatively, the trader may be playing on the deteriorating effects of time decay on this position, which could be hastened by a decline in implied volatility, making the position profitable to buy back before November’s expiration.    

Ford (F) – A new $143 high for oil prices coming just a day before June auto sales figures can mean nothing good for the already shamed and abused automakers. Shares in Ford dropped 5.2% to $4.72 this morning, and option traders’ measured of perceived forward risk rose 16.2% to 91.6% - towering above the 52% historic reading on the stock. Earlier today we noted that traders appeared to be wagering on some immediate pull back above the $5 level, given the heavy volume in July 5.0 calls we observed this morning.  

General Motors (GM) –  GM joined its “partner in purgatory” Ford, trading on heavy volume and elevated implied volatility. With shares down 3% to $11.22, we registered a 13% increase in GM’s already nosebleed-high implied volatility. Options were trading on volume in excess of 104,000 contracts as early as noon, and with puts outmoving calls by a factor of 2.4, the bearish mien among investors is not to be second-guessed. Heavy volume is noted at the July 10.0 put strike, where nearly one-third of the open interest is in play here.  

Beckman Coulter Inc (BEC) – Shares in the medical equipment maker are trading 1.4% higher at $67.72, while an increase in option trading volume to nearly 8 times the normal level appears in what looks like a 1,380-lot call spread. The trader here may be buying the August 65 calls for $3.80 against the sale of 70-strike calls at $1.35, creating a call spread that breaks even for the trader with another 43 cents to the upside from the current share price. Implied volatility at 28.3% compares to a historic reading on Beckman-Coulter stock of 17.3%, indicating nearly 70% more price risk being added to its premiums over the next 30 days – highly elevated for a company not due to report earnings until July 25. Open interest shows traders hold 4 times as many puts as calls in Beckman-Coulter.

RealNetworks Inc (RNWK) – Shares are 3.5% higher at $6.80 as we report a 17-fold increase in option trading volume which appears heavily concentrated on buying in 10% upside calls at the August 7.50 strike. Implied volatility is up nearly 20% on the session, one of the morning’s top gainers, and now at 49.4% shows a sizable elevation above the 35% historic reading on the stock. 

Rebecca Engmann Darst contributed to this report.